As a seasoned researcher with years of experience in the ever-evolving world of blockchain and digital assets, I find myself intrigued by David Schwartz’s thought-provoking question to John Reed Stark. His comparison between crypto investments and emerging artists’ works certainly piques my curiosity.
David Schwartz, the Chief Technology Officer at Ripple Labs, has raised an intriguing query towards the former SEC official, John Reed Stark, concerning the categorization of certain digital assets within the blockchain system as securities.
Ripple CTO argument
Schwartz has asked Stark to explain why, according to the SEC’s understanding, artwork created by a rising artist doesn’t fall under the category of a “security.
He highlighted an analogy between investing in cryptocurrencies and buying work from up-and-coming artists, stating that investors put money into both, expecting to profit from the artist’s future creations or the crypto’s potential growth. This, he argued, generates a market and boosts demand for early works or initial investments.
Is it possible for you to clarify why artwork from an up-and-coming artist doesn’t fall under this definition? By investing funds, a purchaser anticipates earning profits from future creations by the artist, thereby establishing a market and boosting interest in earlier pieces as well.
— David “JoelKatz” Schwartz (@JoelKatz) December 9, 2024
Significantly, Schwartz’s remarks were in response to Stark’s post commending the SEC for its legal successes against cryptocurrency companies. In particular, Stark highlighted a previous U.S. court decision against Terraform Labs. In this instance, the SEC contended that four of Terraform’s digital assets, UST, LUNA, wLUNA and MIR, were classified as securities due to them being investment contracts.
Terraform countered the Securities and Exchange Commission’s argument that certain crypto assets should be classified as investment contracts. They based their claim on uncontested facts. Moreover, the company asked the court to discard the definition of an investment contract, arguing it was outdated “dicta,” a term for statements made in a case that are not essential to the decision but may still have persuasive value.
The court refused Terraform’s petition. As stated by the court, Howey’s definition of “investment contract” is a legal precedent, not just a suggestion. Furthermore, the court pointed out that UST, LUNA, wLUNA and MIR did not meet the three criteria set in the Howey test.
Comparison with Ripple v. SEC case
In its case against Ripple, the SEC argued that the firm offered XRP as an investment contract.
As an analyst, I can share that by July 2023, Judge Analisa Torres determined that the XRP, being a digital token, does not inherently meet the criteria of a “contract, transaction, or scheme” that fulfills the Howey Test for an investment contract.
In the opinion of the judge, the sales of XRP to automated purchasers were not considered investment contracts. Consequently, these transactions did not break any securities regulations.
Following the initial ruling, the Securities and Exchange Commission (SEC) has been instructed to submit its final arguments by January 15th, as reported by U.Today. The United States Court of Appeals for the Second Circuit will then evaluate motions to either dismiss or continue with certain aspects of the case.
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2024-12-09 16:11